Retire Well

Some studies state that the savings rate has the most impact on your retirement outcome, but that is not always true.  As discussed in several previous posts, there are a lot of related variables working together that make finding the “best” retirement strategy a lot like putting together a complex puzzle.  In these posts, we are trying to isolate the variables so you can better understand the impact of each one alone.  This time we are going to tackle the savings rate and increase it so we can retire sooner.

For this example we are using a 47 year old male participant making $50,000 who has an account balance of $75,000.  Some of the other assumptions for this example are:

• The investment is a 60% equity/40% bond portfolio until retirement then only 20% equities
• The participant wants to replace 90% of his preretirement income during retirement
• The plan matches 100% of the first 3% and 50% of the next 3%
• Social Security is included and the lifespan is five years longer than average

 The table below shows the change in savings rates required to retire sooner.           

 The results show that you must significantly increase your savings  to retire sooner.  To retire at 66 instead of 67 he must increase his savings from 6% to 10%, a 67% increase, and to 14%, a total increase of 133%, to retire at 65.  Changing the savings rate that much might be acceptable for one participant to gain a year, but not to another.  Now we’re talking about prioritizing goals and participant preferences, a topic for another day.